In a collusive agreement between two duopolists in an oligopoly, each firm has an incentive to cheat on the agreement because the firm's price
A) exceeds its marginal cost.
B) exceeds its marginal revenue.
C) is less than its average total cost.
D) None of the above answers is correct.

Question

Quizplus · Accepted Answer

A firm has an incentive to cheat on a collusive agreement when its price exceeds its marginal cost because it can increase its profit by producing more output and selling it at a higher price.

In a Collusive Agreement Between Two Duopolists in an Oligopoly